News

UK building and housing post-Brexit with Liberum's Charlie Campbell

28 July 2016 | Liberum Analyst Insight

In this short video, Liberum's Charlie Campbell, a leading equities analyst in the UK Building Materials & Housebuilders sectors, argues that the health and prospects for the industries are brighter than the post-Brexit shakeout implies. Click on the r/h playlist below to hear his brief comments.

Liberum is an independently-owned pan European investment bank. The firm’s core activities are research, sales and trading in large, small & mid cap pan-European equities, as well as investment banking and advisory services including IPOs, secondary issues and mergers and acquisitions.

- Liberum’s team of 42 research analysts cover more than 330 European stocks across nine key sectors

- Liberum was recognized as #1 Corporate Broker and Trader in the 2016 Extel UK Small and Mid Cap Awards and #1 in three research areas.

- Liberum is broker to more than 75 listed companies across 20 sectors and has raised £2.8bn for its corporate clients since the start of 2015.

- The firm was established in 2007, and employs over 160 people in London and New York

Liberum Strategy Insight: A playbook for the bears

(This column is a summary of a detailed 24-pg strategy note published this week that includes stock recommendations intended for professional investors.)

By Sebastian Jory, Liberum’s Strategy & Stock Selection Analyst

(LONDON) - The troubled performance of credit and equity markets in the last six months suggests the chance of an imminent UK recession has risen. We’re not calling it yet but it pays to know what happened in the last financial crisis to avoid missteps.

We studied the FTSE 350 earnings-per-share and stock price trends seen during 2008/2009. The comparisons are imperfect but there are three key points.

DEFENDING THE DEFENSIBLES

First, it’s striking how during the last financial crisis share prices in defensive sectors such as healthcare, consumer staples and support services far overshot what subsequently proved to be small earnings downgrades.

Yes, this can be justified by higher risk premia across all equities but it arguably represents a mispricing given that the risk of long-term capital loss is ostensibly lower. Defensives were the best through-cycle performers (2007-12) and also began rallying off the lows first. We think their performance this time round will be more robust.

Today, current multiples relative to the ’08-09 crisis suggests three sectors that stand out for cheap access to structural growth – aerospace and defence, support services and healthcare.

ULTRA-CYCLICALS

Next come what we call the ‘ultra-cyclical’ stocks – housebuilders, real estate, banks and financial firms. Downgrades now among these sectors would lift the probability of a recession sharply. Ultra-cyclicals that were downgraded first in ’08-09 were also downgraded the hardest.

There are clear idiosyncrasies about the last cycle, most notably that financial leverage across the market was higher, particularly at the ultra-cyclicals.

That said, the market now appears to us much further ahead of the fundamentals than in 2008. Back then, when the FTSE 250 was down 15% from its peak we had begun to see real earnings downgrades at the ultra-cyclicals.

Currently, there is scant real world confirmation that justifies such a sell-off. Either you believe the market is a better discounter now than it was eight years ago or you conclude the market is simply a touch oversold.

IT FEELS CHEAP BUT...

Value stocks – those which trade on the cheapest multiples - have underperformed their quality counterparts by 28% since mid-2014. Should we start buying them?

Only if you think the market is wrong on the economy. Our analysis shows this underperformance doesn’t get close to reflecting a recessionary scenario. The divide between value and quality could widen a further 50% before it looks stretched.

This will bring investors’ focus back on the balance sheet. As credit spreads rise we continue to prefer companies with cash. Whilst buying stocks purely on their dividend yield has worked well in the past five years or so, this approach underperforms in a recession.

We see our 'safe yield' picks – stocks where we see the dividend as less likely to be cut – as a better option, despite yields being optically lower.

Liberum UK Small and Mid Cap companies 'bible' flags winners and losers in a challenging market

14 January 2016 | Analyst Insight

(LONDON) The annual 'bible' for the UK’s Small and Mid Cap equities market released today by Liberum concludes that it will see pockets of outperformance in 2016 led by companies with strong balance sheets or experiencing structural growth, as well as those who are dollar earners or that return cash to investors.

The UK’s Small and Mid Cap market, or SMID, comfortably outperformed the FTSE 100 in 2015 and now tops the Investment Association’s asset class return list on a five-year view.

Liberum’s UK SMID Annual, headlined “Late Cycle Opportunities”, shows that Small Cap remains at a discount but historical late-cycle underperformance of value stocks supports the bank’s conviction that there are opportunities in stocks exposed to structural growth.

It finds greater valuations for companies who have returned cash to investors and expect this to continue in the form of higher P/E multiples in 2016.

“UK SMID has regained its title as the best asset class in the world over five years,” said Joe Brent, Liberum’s Head of Research.

For 2016, “we think strong balance sheets are key,” he added. “Sadly, companies that have invested have mostly been punished. Cash returners have performed well. We argue that regular buy-backs are better than specials, but only regular dividends generate a valuation uplift.”

The report says that there is plenty to worry about globally; China, emerging markets, commodity prices, monetary tightening, negative earnings momentum, high valuations and a tired-looking bull market.

In the UK specifically, Brexit could trigger political instability, a Scottish Independence vote, weakness in Sterling and GDP softness… but more likely the UK will remain one of the highest growth economies in the G7.

The research also explores:

Tailwinds for the UK consumer

Tightening credit markets

The National Living Wage

Liquidity issues

How companies should spend their cash

Investing on AIM

Professional investors only can contact Liberum’s research team by email strategy@liberum.com to know more. We regret we are unable to respond to retail investor queries. Important disclaimer > here.

A version of this Direct Lending market overview was presented by Cormac at the LendIt conference in London on Oct 20, 2015. It is not investment research or a research recommendation and should not be regarded as an offer to sell or a solicitation of an offer to buy and is for Professional Clients only as such term is defined under the Rules of the Financial Conduct Authority.

The UK Small & Mid Cap landscape in an infographic

14 September 2015 | analyst insight

UK small-cap is the best-performing asset class globally over five years, with housebuilders, insurance and media leading sector performance year-to-date, according to Liberum Stock Selection and Strategy Analyst Sebastian Jory.

Click on the infographic below to see more. This infographic appears in the Autumn edition of Liberum's AdLib product just out. It's aimed at professional investors only and identifies nine UK small and mid-cap companies that catch our eye and which may be overlooked.

Agricultural raw materials and packaging inputs are key cost components for Consumer Staples companies. Prices are currently well off 2010/11 peaks and look set to provide relief in an otherwise challenging operating environment.

In this short seven-page presentation (click on image below), Liberum Consumer Staples Analyst Robert Waldschmidt highlights some key commodities trends and the El Niño risk. This work is an extract from Robert's July 3, 2015 research note entitled Consumer Staples: winners, loser of input cost gyrations. Media and professional investors who would like to know more can contact Robert on +44 (0) 20 3100 2085 or via email.

Liberum Capital Limited is authorised and regulated by the Financial Conduct Authority / Registered in England & Wales No. 5912554 / Liberum Capital Inc. is a FINRA Member Firm and is regulated by the Securities and Exchange Commission (SEC)